Businesses Stand to Gain Most in Rivalry of States

A.G. Sulzberger|The New York Times

Friday, 8 Apr 2011 | 11:07 AM ETThe New York Times

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This city, sharing a name with one state but settled in another, has a long history of ugly border skirmishes dating back to the Civil War. And even today, the annual football showdown here between the University of Kansas and the University of Missouri is referred to as “The Border War.”

But the interstate rivalry has grown fierce on a new battlefield — business — as the two states stage cross-border raids and entice companies with generous incentives to move a few miles and resettle on the other side.

Though some say such moves strengthen communities with new jobs and tax revenue, a growing chorus of leaders on both sides are wondering about the point of it all, warning that the efforts serve only to help private companies at taxpayer expense. Even some beneficiaries confess surprise at neighbors’ competing with such rancor.

“In all candor, it’s unusual and a little disconcerting,” said Gerry Lopez, chief executive of AMC Entertainment, the movie theater chain, which is being offered incentives to move to Kansas from Missouri. “I do wonder whether this is an appropriate role for government to be playing.”

Other Midwest states are engaged in similar battles, and have set aside neighborliness for easy growth as they search for answers to rising unemployment in their still-struggling economies.

Though they may say their development efforts are designed to help them compete with the two coasts for companies, they often end up fighting over companies already in the region.

South Dakota, for example, has long run radio and print advertisements in Minnesota boasting of its far lower tax burden, recruiting businesses with names like Twin City Fan. Gov. Dennis Daugaard of South Dakota argued that it was usually more effective to recruit businesses from neighboring states because they already knew the region.

“Rather than swim upstream with someone who has negative connotations because of a lack of knowledge, it’s easier,” he said.

This approach is often criticized by economists like Timothy J. Bartik, who studies state and local economic development policies for the W. E. Upjohn Institute for Employment Research.

“It’s a little bit of a zero sum game,” Mr. Bartik said. “Because one part gains and the other part loses. And the gains are much more modest than the losses.”

Leaders in some Midwestern border cities like Omaha, Sioux City and Fargo insist that they have found ways to work together. But the battle over jobs continues with particular intensity in Kansas City, where decades of rapid growth have transformed the Kansas suburbs into successful economic rivals of the Missouri downtown.

AMC, which is being wooed by both sides, has grown into one of this city’s largest companies since it started with a single theater downtown in 1920, just blocks from its current headquarters. But a troublesome air-conditioning system prompted the company to search for a newer base. Kansas has offered a package of incentives that includes a 10-year tax rebate of more than $40 million. Missouri, unable to match it, hopes AMC’s deep roots will keep the company where it is out of loyalty. Both Kansas’ governor, Sam Brownback, and Missouri’s, Jay Nixon, have lobbied personally in recent weeks.

Mr. Lopez has not decided on his next move, but he noted that lavish incentives from Kansas could not be easily brushed aside. He was skeptical, too, about any broader benefit to an area where the lives of most of his employees already extend comfortably to both sides of the border.

“Will there be any net improvement to the region?” he asked. “Probably not.”

The "Jobs Poaching Expedition"?

Mark Funkhouser, Kansas City’s mayor, is a vocal critic of what he calls “this recent jobs poaching expedition,” complaining that the efforts drain time and money that could be spent on services like education and infrastructure that should be used to attract residents and businesses from outside the region.

“What politicians are doing is creating the illusion that they are creating jobs by short-term fixes that actually weaken the region’s ability to compete,” he said.

But Brent Miles, president of the economic development council in bordering Wyandotte County, which includes the much smaller Kansas City, Kan., said he did not recruit from across state lines unless companies or their representatives initiated the contact. Indeed, Nick Jordan, the Kansas secretary of revenue, said there was a “nonpoaching agreement” signed by the two states’ governors (though the document could not be located).

Those claims are widely dismissed by people who say that a single exploratory call by a company can set off a full-court-press recruiting drive.

Though the flow of companies has gone both ways over the years, there is no dispute that Kansas has been far more successful of late.

Of the 53 companies that have received state tax incentives to move into Kansas since the 2009 fiscal year, 45 have been from Missouri, according to a spokesman for the Kansas Department of Commerce. During that period, just one company moved from Kansas to Missouri, according to Missouri figures.

In Wyandotte County, Mr. Miles said, 133 of the 156 “new jobs” from out of state last year were from Missouri, using a phrase that has rankled those who say the same employees usually just alter their commutes.

“Our definition is new to us,” Mr. Miles explained. “It is a new job, obviously, to the State of Kansas. When you’re tax driven, that’s important. Now the State of Kansas gets the tax instead of the State of Missouri.”

Art Hall, director of the Center for Applied Economics at the University of Kansas School of Business, said the debate over such programs was difficult to referee because much of the information about the incentives was not public. He was doubtful that such programs made economic sense. “What you’ve really done is set up a situation to be abused by businesses,” Mr. Hall said.

That has been the experience of David Frantze, a prominent real estate lawyer in Kansas City, who said that when he had a client looking for office space in the metro area, he immediately sent requests to both states asking about potential packages.

“It’s horrible public policy,” he said. “But as long as it’s the law of the land, as a lawyer you have the responsibility to get the best deal for your client.”

A growing number of prominent community members on both sides favor a border zone, in which states would be allowed to offer incentives only for new jobs, rather than those that are simply being relocated within it.

Such plans have been often floated without success. But an informal group of civic leaders, including Don Hall Jr., the chief executive of Hallmark, based in Kansas City, has been pushing more aggressively for a détente.

“Our success as a regional city is not based on one side or the other, but so many of our mechanisms for competing are really aimed at each other,” Mr. Hall said.

John Vratil, a state senator who represents the Kansas side of the metro area, agreed that the efforts were a distraction but had a more fatalist attitude. “It’s just an inherent aspect of the free market,” he said.

That is why Jeff Kaczmarek, head of the Economic Development Corporation of Kansas City, is urging the Missouri Legislature to expand tax incentives to make it easier to compete.

“From a philosophical perspective it makes no sense, but the question is: Is the State of Kansas going to unilaterally disarm, and until that happens why would Missouri unilaterally disarm?” he asked.